The Fiscal Bazooka

Markets remain undecided on whether to treat the signs of intensifying global economic weakness in Q4 and a looming slowdown in earnings growth as the kitchen sink—a signal that the worst is over—or evidence that conditions are worse than anticipated. As such, I thought that I’d discuss the other macro story du jour: The likelihood of a grand global experiment in coordinated fiscal stimulus to take over from our tapped-out monetary policymakers. Laughable you say; perhaps, in the short run, but the signs are clear enough if you care to look. Fiscal discipline has become unfashionable, even to the point that it is deemed outright irresponsible for individual economies to pursue such a strategy from the point of view of global economic growth. These days, economies who show fiscal restraint with large external surpluses—the savers who finance the borrowing of others—are “leaches” on global aggregate demand. If they do not change their ways on their own, they should be coerced. The flirt with the idea of a big fiscal push diverges in intensity across the major economic regions, but I identify three common denominators.